Its easy selling to the Chinese, right?

As Alibaba goes public, and many people make a fortune off the stock, I’m reminded of how so many American companies have gone to China and failed.  Ebay, and Amazon in particular.  

Facebook and Twitter are of course banned.  Google.

These same companies dominate nearly everywhere else on the planet.  Why do they fail in China?

It’s neither white nor black.  My Chinese friends here in America are convinced the Chinese government simply keeps them out, as they won’t commit to self censorship.   But what of Amazon and Ebay?  Were they really outsmarted by their Chinese counterparts?  I’d say yes, they were, but with a nudge from the Chinese govt perhaps as well.   And this dovetails with what I want to write about today and get out of my system, ie how hard, so very hard it is to do business with the Chinese.   Not as a supplier.  As a customer.  It is very hard for a small guy like myself, let alone for a large company to simply sell things to China.

Back in the 80’s the West had the same issue with the Japanese, and the Koreans.  Like everyone else I thought Japan was a wealthy country until I actually moved there in the early 90’s.  I was appalled at how badly the Japanese lived.  Flimsy rice paper doors.  No showers.  No ovens.  Etc.  Of course what I did not understand was that Japan being so crowded, it just didn’t have the room to enjoy the Western style of living.  China is the same.  But that provides opportunities.

Western companies have had large success in China.  But it’s usually in a non strategic industry like a supermarket, or an industry that China needs help with, ie automotive.

(China was smart to make foreign car companies start JV’s in its country in order to sell to the Chinese market.  This was a major principle of China doing business with the West in the 80’s and 90’s.  Have you noticed China does NOT do this with Africa, and other developing economies?  When the shoe is on the other foot, China doesn’t seem too interested in sharing any technology, and even imports its own workers.)

 It seems the agricultural industry is where most nations have the most luck trading with China.  I believe America even has an agricultural trade surplus with China.

I will say this:  China will not truly mature as a nation until it learns to buy from other countries.  Or more to the point of what I want to rant about:  until it allows anybody, big or small, to come to its country to conduct business in an open and transparent way, without fear of having to pay someone off.

It is not the large companies that will make China grow, but the little guys with the ideas. The entrepreneurs for crying out loud.  The ability of entrepreneurs to freely conduct business as they wish within China’s borders will make or break the Heavenly Kingdom.

People like me, dammit.

Japan taught me one thing:  how to take advantage of space.  For example,  everywhere one looks in Japan one sees the multi-level outdoor parking garages, several stories high,  that are automated.   

Not too big, not too obtrusive.

China needs the same thing.  This takes away the need to build massive underground parking garages, and is an efficient use of space.  Want to know how to make money in China:  go to Japan.

Except I can’t do it. 

Having the idea in China just isn’t good enough.  And having the capital is only half the battle.  And that in one line explains why America will prosper and China will not.  Like I’ve said over and over a country has to have an environment where the ideas can be implemented into action. 

China can’t rely on cheap labor to grow its way out of poverty forever.   It will need new ideas from people who are not government officials.   In Most Western countries it is small business that is the true engine of the economy.  Not the government, or the banks.  Sooner or later it has to give the little guy like me a break.   As such, China is a long, long way from transitioning to that phase.

Yet, China has already shown that small business can thrive in its country.  Just look at all the KTV’s!  With a simple payoff to the right person, KTV’s have shown that a small business can thrive pretty much unimpeded within China.   Do they pay taxes?  I do not know.   As such, I would argue that the most successful type of small business in China is the KTV.

In China, I honestly speaking would not know where to begin to legally start a business in order to execute upon an idea. (the parking garages)  And even worse, I’m not even sure foreigners are allowed to start their own construction oriented business in China.

More to the point, I wouldn’t know who to payoff.  That’s why I’m convinced no small laowai can truly start his own business in China and make money off the Chinese.  China even makes it a point to “go after” large Western companies.  Walmart was caught selling fox meat, that was improperly mislabeled.  My response: so what? Seriously. So the fuck what?    

How many jobs does WM create in China?(whoops….that’s a laowai way of looking at the issue)

Doesn’t WM have internal quality standards and wages easily higher than any comparative Chinese company?   And yet the Chinese gov’t chooses to go after these guys.

Maybe that’s the problem:  a country used to low standards will not appreciate the work it takes to reach and maintain a higher standard. 

I went to a local food store in Hangzhou a few years ago with the wife and M&L to buy some things.  The internal power was out.  Yet they were still open.   When I’m in a surly mood I will not hesitate to unleash my mandarin.   I complained I couldn’t buy any milk if the freezer is out of power.  The worker couldn’t care less.   You think the power is ever gonna be out at a WM?  Or I’ll receive a “I don’t care” attitude from them?

Take a look at Xiaomi.  It’s a cheap smartphone that is piggybacking off the back of Apple and Samsung, and even Huawei, etc.  It will makes its founder a zillion renminbi.  But at the end of the day it will still be a cheap ass phone, that shows everyone you have it because you can’t afford an overpriced Iphone.  And it took him ten years after the release of “smart phones” just to get this to market. 

Don’t get me wrong.  He sees a market.  China has 800 million peasants.  That’s 800 million customers for Xiaomi.  Congratulations.  But do you want to be the country that sells to the pauper or the country that can get away with selling an overpriced product to the middle class and beyond?  China will not get rich selling to peasants.  One doesn’t have to innovate to sell to the poorer segments of one’s society.  One simply needs to be cheap enough.

Foxconn has a million workers in China.  Think about that for a moment.  It tells you about the scope of China’s size.  And yet probably over 90% of Foxconn’s biz is selling to the laowai.   And yet China still goes after Apple, for some silly nonsense as regards a warranty.   Did anyone see any Chinese newspaper go after Foxconn as to how they treat their workers?   Did the People’s Daily have a front page story on the suicide rate?

This sense of entitlement I see in China’s media is too surreal to take seriously.   Don’t hold your breath for an investigative series on how Xiaomi treats its own supply chain, by the way.   Unless the CEO becomes a laowai that is.

 China is an awful lot like America was in the 1800’s: 

Cheap and plentiful labor.   Immigration was unregulated, and fueled the Great American Expansion.

Insular.  Not really caring too much about life anywhere else.  Our focus was on settling the West, and wiping out the Indians in order to do so. 

Imports?  What imports?  America consumed everything it made.   (Only the Carnegie’s and Rockefeller’s had a need for European goods.)   And it exported the rest. America had a nearly continuous 150 year trade surplus.

Lack of IP Protection:  we copied not only from the Europeans but even from ourselves. 

But that is where it ends.  As I sit and read Nothing Like it in the World by Stephen Ambrose, I can’t help but come away very impressed with the “can do” spirit of the times.  

Does China have a “can do” spirit?  Yes, it does. (“We’ve decided we want to go build bullet trains.  We will fund you.  Go build them.”) But it comes from the top down, not the down up.  And that’s the problem.   A government bureaucracy, by nature, cannot be a fountainhead of new ideas.  All it can do is be the banker.   When the government leads the way, a dollar towards building something for the people is also a dollar in someone else’s pocket.   And when government officials are busy taking what they can, things like Safety and Engineering go out the window.  The project is no longer for the benefit of the people but for the enrichment of the government official.

In sum, it’s frustrating having an idea in China, and even the capital, but still not the means to implement it.